|Freeing captive coal|
|Thursday, 01 December 2011 04:51|
Time to think of innovative solutions to coal problem
With electricity, gas and water supply growth rising from 7.9% in Q1FY12 to 9.8% in Q2FY12, it is tempting to think India’s power sector woes are behind it. You just have to look at the mounting losses in the sector that are driving utilities to banks for restructuring loans (Crisil estimates R56,000 crore of power loans could go bad if tariffs are not raised in the next 18 months) and the huge shortage in coal stocks, however, to know that the situation is pretty grim. Indeed, the latest GDP data shows that the mining sector actually contracted 2.9% in Q2—it grew 1.8% in Q1FY12 and 8% in Q2FY11. As a result of this, 52 thermal plants now have less than a week of coal stocks (it was 36 at the beginning of October) as opposed to the norm of 15-30 days. As a result of this, peak rates for short-term electricity on the largest power exchange rose to R9 on Tuesday for southern states—this will, in turn, raise losses in the power sector.
A ready, if controversial, solution offers itself and it is unfortunate that the PM has repeatedly called off meetings on the power sector over the past few months—let units with captive mines produce extra coal and sell this in the open market. The coal ministry has opposed the move on the grounds that it will mean windfall profits for power units that have already benefited from having captive mines. But the alternative is to import much more expensive coal. It is also true that allowing Reliance Power to use the extra coal from its Sasan UMPP in another of its power plants is the subject of a suit by Tata Power in the Supreme Court—The Indian Express reported on Wednesday that power minister Sushil Kumar Shinde is proposing that this permission now be withdrawn! But it may be a good idea for the government to consider the proposal seriously—part of the windfall profits made by the captives can be sequestered by the government and it can be ensured that the captive production is sold to units that don’t have captive coal. In the medium term, however, there is no solution other than allowing the private sector, from India and overseas, to enter into commercial coal mining.